Probe of resources diplomacy corruption widens

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Probe of resources diplomacy corruption widens

Prosecutors investigating shady deals carried out in the name of resources diplomacy raided two major companies Wednesday.

The special investigation division of the Seoul Central District Prosecutors’ Office sent investigators to Keangnam Enterprises in Seoul and Korea National Oil Corporation (KNOC) in Ulsan and confiscated hard drives and documents.

The division also raided the residence of Sung Wan-jong, chairman and largest shareholder of Keangnam Enterprises and a former lawmaker of the ruling Saenuri Party known to be close to former President Lee Myung-bak. Sung was also a member of the Lee’s presidential transition committee in 2008.

Resources diplomacy, a signature initiative of the Lee administration, was an attempt to secure natural resources for Korea through large investments overseas. But many of the investments are now considered to have been expensive duds that cost the nation but benefitted individuals and companies.

Suspicious transactions that have been investigated in different departments were forwarded to the special investigative team earlier this month for faster processing.

The corporations raided Wednesday were major members of a consortium drilling for oil in two districts of Russia’s Kamchatka Peninsula from 2005 to 2009, with Canada-based Central European Petroleum as the mine operator. The consortium changed the operator to Gazprom in 2009 and withdrew from the project in October 2010 citing low economic feasibility. The consortium reportedly lost investments that added up to about 300 billion won ($266 million).

KNOC had a 55 percent share in the consortium and Keangnam Enterprises had 20 percent. SK Gas held 15 percent and Daesung Industrial had the remaining 10 percent.

Investigators are also looking into an allegedly corrupt transaction between Keangnam Enterprises and the Korea Resources Corporation (Kores) in 2010.

Kores established a consortium in October 2006 with seven other companies including Keangnam Enterprises to acquire 27.5 percent of a nickel mining project in Madagascar for 1.9 trillion won. Kores held a 14.3 percent share of the consortium and Keangnam Enterprises held 2.75 percent.

However, Keangnam could not come up with all the money for its share of the investment in 2008, so Kores paid 17.1 billion won on its behalf and allowed it to pay the money back by May 2009. But Keangnam Enterprises didn’t.

According to the contract, companies that could not pay their entire stake must give up their shares and get back only 25 percent of their investment downpayment. But Kores acquired the shares by paying 100 percent of Keangnam’s commitment in March 2010. Keangnam suffered no loss.

That raised the suspicion that then-Kores President Kim Shin-jong, who was also known to be close to former President Lee, was asked for a favor by Keangnam Enterprises Chairman Sung.

The feasibility of the nickel mine was also controversial. Kores initially reported to its board of directors that it was expected to bring in 191.5 billion won in profit, while it actually delivered a 57.8 million won loss.

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